Question 1

A firm has days' sales in inventory of 105 days,an average collection period of 35 days,and takes 42 days,on average,to pay its accounts payable.Taken together,what do these three figures imply about the firm's operations and its cash flows?

Accepted Answer

The answer of A firm has days' sales in inventory...

Question 2

Which is a more meaningful measure of profitability for a firm,return on assets or return on equity? Why?

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The answer of Which is a more meaningful measure of...

Question 3

Why is it important for managers to understand the importance of both the internal and the sustainable rates of growth?

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Question 4

Katelyn's Kites has net income of $240 and total equity of $2,000.The debt-equity ratio is 1.0 and the plowback ratio is 40%.What is the internal growth rate?
A)2.46%
B)3.00%
C)4.92%
D)5.88%
E)6.00%

Accepted Answer

Total assets = $2,000 + $2,000 = $4,000 (The debt-equity ratio of 1.0 means TD = TE. );Return on assets = $240 F1F1F1S1F1F1F10 $4,000 = .06;Internal growth = [.06 F1F1F1S1F1F1F10 .40] F1F1F1S1F1F1F10 [1 - (.06 F1F1F1S1F1F1F10 .40)] = 2.46%

Question 5

List and interpret two liquidity ratios.

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Question 6

The Green Giant has a 5% profit margin and a 40% dividend payout ratio.The total asset turnover is 1.40 and the equity multiplier is 1.50.What is the sustainable rate of growth?
A)6.30%
B)6.53%
C)6.72%
D)6.80%
E)6.83%

Accepted Answer

Return on equity = .05 F1F1F1S1F1F1F10 1.40 F1F1F1S1F1F1F10 1.50 = .105;Sustainable growth = {.105 F1F1F1S1F1F1F10 (1 - .40)} F1F1F1S1F1F1F10 {1 - [.105 F1F1F1S1F1F1F10 (1 - .40)]} = .06724 = 6.72%

Question 7

What is the return on equity for 2011?
A)16.2%
B)20.9%
C)21.7%
D)22.1%
E)23.3%

Accepted Answer

Return on equity for 2011 = $760 F1F1F1S1F1F1F10 ($3,500 + $1,200)= .162 = 16.2%

Question 8

Suppose you calculated the following ratio for a firm: The sum of the compensation paid to the owners,directors,and managers,divided by total sales.Which class of financial ratios should this be included in and why? Who might be interested in such a ratio?

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Question 9

State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.

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Question 10

Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio.What is the internal growth rate?
A)8.2%
B)8.7%
C)9.4%
D)10%
E)None of the above

Accepted Answer

Internal growth rate = {.10*(1-.20)}/{1-[.10*(1-.20)]} = .08/.92 = 8.7%

Question 11

What is the equity multiplier for 2011?
A)1.21
B)1.36
C)1.44
D)1.82
E)1.91

Accepted Answer

Equity multiplier for 2011 = $6,370 F1F1F1S1F1F1F10 ($3,500 + $1,200)= 1.36

Question 12

Catherine's Consulting has a net income of $ 1,400 and a total equity of $ 12,000.The debt-equity ratio is 1.0 and the plowback is 30%.What is the internal growth rate for Catherine's consulting?
A)1.6%
B)1.78%
C)1.98%
D)2.21%
E)None of the above

Accepted Answer

Internal growth rate = [.0583*.30] / [1- .0583*.30] = 1.78%

Question 13

Suppose a firm calculates its external funding needs and finds that it is negative.What are the firm's options in this case?

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Question 14

Catherine's Consulting has a net income of $ 1,400 and a total equity of $ 12,000.The debt-equity ratio is 1.0 and the plowback is 30%.What is the return on assets?
A)4.24%
B)4.64%
C)5.23%
D)5.83%
E)None of the above

Accepted Answer

Total assets= 12,000+12,000=24,000 (The debt-equity ratio of 1.0 mean total debt= total equity)Return on assets= 1400/24,000 = 5.83%

Question 15

Robert Morris Associates publishes peer group financial information for a host of industries,yet the numbers typically only appear in common-size form.Why not report average dollar amounts instead?

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The answer of Robert Morris Associates publishes peer group financial...

Question 16

Fleur International had a 3% profit margin and a 35% dividend payout ratio.The total asset turnover is 1.25 and the equity multiplier is 1.30.What is the sustainable growth rate?
A)3.27%
B)3.67%
C)4.27%
D)5.60%
E)None of the above

Accepted Answer

Return on equity= 0.03*1.25*1.30=.04875Sustainable growth = {.04875*(1-.35)}/ {1-[.04875*(1-.35)]} = .03169/.96831 =.0327 = 3.27%

Question 17

Neal's Nails has an 11% return on assets and a 30% dividend payout ratio.What is the internal growth rate?
A)7.11%
B)7.70%
C)8.34%
D)8.46%
E)11.99%

Accepted Answer

Internal growth rate = {.11 F1F1F1S1F1F1F10 (1 - .30)} F1F1F1S1F1F1F10 {1 - [.11 F1F1F1S1F1F1F10 (1 - .30)]} = 8.34%

Quiz 3: Financial Statements Analysis and Long-Term Planning

A firm has days' sales in inventory of 105 days,an average collection period of 35 days,and takes 42 days,on average,to pay its accounts payable.Taken together,what do these three figures imply about the firm's operations and its cash flows?

Which is a more meaningful measure of profitability for a firm,return on assets or return on equity? Why?

Why is it important for managers to understand the importance of both the internal and the sustainable rates of growth?

Katelyn's Kites has net income of $240 and total equity of $2,000.The debt-equity ratio is 1.0 and the plowback ratio is 40%.What is the internal growth rate?

List and interpret two liquidity ratios.

The Green Giant has a 5% profit margin and a 40% dividend payout ratio.The total asset turnover is 1.40 and the equity multiplier is 1.50.What is the sustainable rate of growth?

What is the return on equity for 2011?

Suppose you calculated the following ratio for a firm: The sum of the compensation paid to the owners,directors,and managers,divided by total sales.Which class of financial ratios should this be included in and why? Who might be interested in such a ratio?

State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.

Moulton Incorporated has a 10% return on assets and a 20% dividend payout ratio.What is the internal growth rate?

What is the equity multiplier for 2011?

Catherine's Consulting has a net income of $ 1,400 and a total equity of $ 12,000.The debt-equity ratio is 1.0 and the plowback is 30%.What is the internal growth rate for Catherine's consulting?

Suppose a firm calculates its external funding needs and finds that it is negative.What are the firm's options in this case?

Catherine's Consulting has a net income of $ 1,400 and a total equity of $ 12,000.The debt-equity ratio is 1.0 and the plowback is 30%.What is the return on assets?

Robert Morris Associates publishes peer group financial information for a host of industries,yet the numbers typically only appear in common-size form.Why not report average dollar amounts instead?

Fleur International had a 3% profit margin and a 35% dividend payout ratio.The total asset turnover is 1.25 and the equity multiplier is 1.30.What is the sustainable growth rate?

Neal's Nails has an 11% return on assets and a 30% dividend payout ratio.What is the internal growth rate?